Essar Energy Doubles Revenue After Expanding Refinery Capacity

By Roxana Zega -
Nov 26, 2012

Essar Energy Plc (ESSR), owned by
billionaire brothers Shashikant and Ravikant Ruia, almost
doubled sales in the fiscal first half after expanding Indian
refining capacity and buying an oil-processing plant in Britain.

Revenue jumped to $12.8 billion in the six months through
September from $6.5 billion a year earlier, the company said
today in a statement. Adjusted earnings before interest, tax,
appreciation and amortization almost tripled to $582 million.

Essar Energy completed an expansion of the Vadinar refinery
in the western state of Gujarat in June, increasing annual
capacity to 20 million metric tons from 14 million tons. The
company also boosted fuel volumes with the acquisition last year
of Royal Dutch Shell Plc (RDSA)’s Stanlow refinery in northern England.

“We are getting excellent results from our major
investments, in particular from our Vadinar refinery expansion
and the Stanlow acquisition,” Chief Executive Officer Naresh Kumar Nayyar said on a conference call. “The expansion means we
are now able to process a greater percentage of lower-cost
ultra-heavy crudes, notably from Latin America.”

Essar Energy, which recently changed its financial year-end
to March, reported a loss after tax of $200.8 million in the
first half, compared with a profit of $206.2 million a year
earlier. The Port Louis, Mauritius-based company cited higher
interest costs and depreciation, increased currency losses and
the loss of a sales tax benefit.

Power Production

Operational earnings from the power division fell 13
percent to $93 million as a monsoon affected the amount of river
water available for its Salaya plant near the Vadinar refinery.
The company is awaiting government approval to build a seawater
pipeline to the Salaya facility.

While Essar Energy has expanded power generating capacity
more than fourfold in five years, plans to mine coal for its
electricity plant in Madhya Pradesh state have been delayed by a
federal government decision to seek a ministerial panel review.

Mahan Coal Ltd., a joint venture between Essar and Hindalco
Industries Ltd. (HNDL), has now received forest clearance for a coal
block to feed the Mahan I power plant, and expects to produce
the first coal in 15 to 18 months, Nayyar said.

Essar rose as much as 7.4 percent in London trading, and
was up 5 percent at 127.2 pence as of 1 p.m. local time. The
shares have dropped 26 percent this year, losing 25 percent in
January alone after India’s top court overturned a ruling that
allowed the energy producer to defer payment of a sales tax.

The company, whose borrowings rose to $6.69 billion in the
first half from $6.27 billion, has started a program to recast
$4.8 billion of debt, extending overseas-loan maturities and
switching some rupee liabilities into dollar-based debt, two
people with direct knowledge of the matter said this month.

“We are looking at a program of refinancing our
liabilities for the next two to three years, but we are at an
initial stage,” Nayyar said. “We are looking at about $900
million.”